Rent setting: social housing (England)

Published Monday, November 13, 2017

This House of Commons briefing paper explains key policy developments in relation to setting social housing rent levels in England since 2002. It covers recent policy developments including the requirement on social landlords to reduce rents by 1% in each year for four years from April 2016 and the rent setting policy which will apply from 2020.

Rent restructuring and convergence 2002-15

In 2002 the Labour Government introduced a rent convergence policy under which, over a 10-year period, rents in social housing (local authority and housing association owned stock) were to be brought into alignment.

A rent formula was established with actual rents moving towards a national formula rent which took account of values of properties and local earnings relative to national earnings. A ‘bedroom weighting’ factor was also applied to try and ensure the resulting rents better reflected the perceived value of the properties being occupied. These formula rents were increased each year by the Retail Prices Index (RPI) + 0.5%.

The Coalition Government continued this rent setting process with (initially) a revised target convergence date for local authorities of 2015-16, subject to a maximum annual rent rise for an individual tenant of RPI + 0.5% + £2 per week.

A 10-year rent settlement from 2015

As part of the 2013 Spending Round the Coalition Government announced that “from 2015-16 social rents will rise by CPI plus 1 per cent each year for 10 years.” Following this announcement, DCLG sent a letter to housing bodies on 2 July 2013 in which plans to cut short the policy of converging council and housing association rents were revealed. Social landlords whose average rents had not yet reached target levels were concerned about the implications for their ability to repay debt and invest in new and existing social housing stock, but the certainty delivered by a 10 year rent settlement was welcomed.

Summer Budget 2015 - reducing rents by 1%

The certainty of the 10-year settlement was short-lived, as on 8 July 2015 (Summer Budget 2015) the Chancellor announced that rents in social housing would be reduced by 1% a year for four years resulting in a 12% reduction in average rents by 2020-21. The measure is forecast to save £1.4bn by 2020-21, primarily in reduced Housing Benefit expenditure. Around 1.2m tenants not in receipt of Housing Benefit in the social rented sector are expected to benefit by £700 per year (current prices).

This policy change was unexpected and was greeted with some dismay by social landlords who have had to model the impact on their business plans. Providers of supported housing, where rent levels tend to be higher, expressed particular concerns about the viability of these schemes. The Government responded at the end of January 2016 with an announcement of a year-long exception for all supported housing from the 1% rent reduction. On 15 September 2016, the Secretary of State announced that the deferral of the 1% rent reductions would end. Rent reductions are being applied to supported housing schemes, with some exceptions, so that rents for these properties will decrease by 1% a year for 3 years up to and including 2019-20.

The Office for Budget Responsibility (OBR) is predicted an overall reduction in housing investment as a result of the rent reduction policy. The measure is being implemented through provisions contained in the Welfare Reform and Work Act 2016 and associated regulations.

A post-2020 rent policy

The National Housing Federation is lobbying for flexibility for associations to set their own rents. The Housing White Paper, Fixing our broken housing market (February 2017), included a commitment to develop a rent policy for social landlords beyond 2020.

On 4 October 2017, DCLG announced that “increases to social housing rents will be limited to the Consumer Price Index (CPI) plus 1% for 5 years from 2020.” This return to inflation-linked rent setting has been welcomed within the sector.

Housing policy is a devolved matter; different rent setting policies apply in Scotland, Wales and Northern Ireland. Changes to Housing Benefit are not devolved, aside from certain limited circumstances in Scotland. This means that changes to Housing Benefit entitlement have an impact on the rental income of social landlords in the devolved nations.